For most contractors, the past year turned out to be a great time to be in the residential HVAC business. Consumers were staying at home and spending on comfort rather than leisure. But now the situation is returning to something more like normal. At the same time, costs of everything from equipment to vehicles are rising. Now is the time for contractors to pay more attention to how they manage their money.
That was the message delivered by Chris Crew, president of the Blue Collar Success Group, during a recent webinar. Crew said events turned out well for HVAC contractors last year. They were deemed essential businesses, meaning they could keep working while others had to shut down. The government provided stimulus money to consumers to pay for their services and guaranteed Payment Protection Program loans to keep staff employed.
What if none of that had happened, though? Crew said the lesson of 2020 really is that many HVAC contractors need to reassess their cash management. Crew recommends having six months of cash on hand. He said HVAC contractors need three bank accounts: operations, payroll, and a money market.
Cash is king, but credit is crucial as well. Crew said many HVAC contractors avoid debt. They still should have a line of credit available. If they already have a line of credit, Crew said, they should consider another one.
Workers Leave When Work Is Interrupted
One key reason for keeping so much money available is HVAC contractors would need it to keep staff if the business did have to shut down for an extended period. If that happened, and the pandemic showed it could, staff may move away. The pandemic was an extreme and rare event, but a natural disaster, such as a hurricane or wildfire, could have the same effect. Crew said people are a main asset for an HVAC firm.
“As an owner and manager, your job is to protect and grow those assets,” Crew said.
Replacing workers is challenging due to the labor shortage. Right now, HVAC contractors face another shortage: supplies. Close rates on HVAC sales are at all-time high, Crew said, but installing and collecting on that work is what puts money in the bank. That means HVAC contractors need the equipment and other supplies to do their jobs.
Crew said contractors need to take creative steps to ensure they have what they need. They need to work with their distributors. He said HVAC contractors should leverage their loyalty to get special treatment, such as the ability to place a blanket order.
“You’ll be really surprised what you can get if you ask,” Crew said. “If you don’t ask, the answer will always be no.”
HVAC contractors also need to work their networks to find what they need. Crew said what’s in short supply in one area may be readily available in another and vice versa. He said contractors should be prepared to travel if they need to and stock up for several weeks.
Finding Vehicles and Fuel For Them
Of course, traveling requires fuel and those costs are rising. That is, when gas is available. HVAC contractors in the Southeast faced a lack of gasoline in June following the Colonial Pipeline shutdown. Experts warn of more such shortages this summer due to a lack of drivers for fuel trucks.
“If you don’t have fuel, you can’t service customers,” Crew said.
He said some HVAC contractors may want to consider installing their own fuel tanks on-site. Fueling vehicles is expensive, and so are the vehicles themselves. A number of factors have driven up prices for both new and used vehicles. Both are also in short supply.
Crew recommends that HVAC contractors who lease their vehicles work with those lessors to extend the lease or buy the vehicles outright. He said maintenance is more important than ever. Crew also said HVAC contractors need to expand what they consider for their work fleets.
In some cases, that means opting for a Ford instead of a Chevy. In other cases, it means getting a little more creative. Crew uses the example of a Kia Soul, a boxy CUV more known for its off-beat ads featuring hamsters than its use as a work vehicle. Take out the back seats, though, and it functions fine for smaller jobs, Crew said.
Now is the time for this kind of unconventional thinking. HVAC contractors can choose their work based on gross margin. At the same time, they need to control rising costs.
“Take action and take action now,” Crew said.